American Electric Power (AEP), the US-based energy company, today announced it had agreed to acquire the UK Fiddler’s Ferry and Ferrybridge coal-fired power plants from Edison Mission Energy, a subsidiary of Edison International, at a cost of approximately $200 per kW.
The £650m ($960m) purchase included power plant assets valued at £550m and coal supplies of £100m.
AEP chairman, president and chief executive officer, E. Linn Draper Jr. said, “The acquisition is consistent with the strategic objectives of our European business, which is to build a trading, marketing and optimization business across key aspects of the wholesale fuel and power generation value chain in Europe.”
Draper said that these were the first European assets that they had found to be priced at the right level and that AEP had looked at a considerable number of other options.
Edison Mission Energy (EME) sold the plants, which it bought in 1999 for £1.3bn, following a competitive bidding process and will take a significant one-time loss. “This investment has been a major disappointment,” said Al Fohrer, EME president and C.E.O. He blamed the market conditions and the cash drain, which the plants imposed on the company for the decision to sell.
AEP has been successfully following a strategy in the US of linking electricity generation with wholesale marketing and trading which it wishes to replicate in Europe. It believes coal-fired assets will become increasingly important to the UK as the country moves towards being a net importer of gas.
The acquisition will be immediately accretive to AEP’s earnings by approximately $0.06 per share in 2002. Hank Jones, senior vice president with AEP subsidiary AEP Energy Services, said the acquisition price was attractive based on current market conditions in the UK.
AEP intends to fund the acquisition with a combination of short-term debt and non-recourse debt. Since it will generate sufficient cash flow after all debt service, the company anticipates credit ratings will not be impacted. The transaction is expected to be completed by the end of the year.
Fiddler’s Ferry is a four-unit, 2 000 MW plant on the River Mersey in northwest England. Ferrybridge is on the river Aire in the northeast and is a four-unit, 2 000 MW station. Between them, they account for 6 per cent of electricity production in England and Wales and 16 per cent of the coal-fired production.
Jones told analysts that the plants were well maintained and foresaw no unplanned outages. He said that if a decision was made to install scrubbers to meet higher environmental standards the cost would be £75-80m per GW. Such a decision would not need to be made until 2004.
AEP is currently undertaking 600 European commodity trades a week across a number of commodities including coal and gas. It said that the newly acquired generation assets fitted into its strategy of generating and trading but did not feel that ownership of a supply business was needed in order to maximize returns from its new assets.